OPEC may adjust production if oil price falls further - J P Morgan

Brent crude oil fell below $88 a barrel on Monday after key Middle East producers signalled they would keep output high even if that meant lower prices. J. P. Morgan Regional Head of Oil and Gas Research Scott Darling says further oil price falls may lead OPEC to adjust production for winter months.

HONG KONG, CHINA (REUTERS) - J. P. MORGAN, REGIONAL HEAD OF OIL AND GAS RESEARCH, SCOTT DARLING, SLATE: Brent crude oil prices slid to a 4-year low due to subdued global economic outlook, how low will the price go?

DARLING: J. P. Morgan's long run, real Brent price is around $90 and that is based on sort of average costs and taxes to renumerate an oil company's cost of capital. So sustainably below that level we would expect most rational oil companies to further reduce costs and investments.

SLATE: When do you think OPEC will start slashing output to support prices?

DARLING: Well despite some of the mixed messages I have read this weekend from the Middle East we still believe Saudi Arabia as the swing producer would look to act if prices in the near term remain depressed. We have started to see over the August period that the kingdom has started cutting back on exports from sort of early summer. So I think further price falls may actually lead OPEC and particularly Saudi Arabia to look at adjusting production as we go into the winter months.

SLATE: Do you think there is more downside for oil demand in China considering the slowing economy?

DARLING: It is true that Chinese oil demand growth has been sluggish this year. There are good points, gasoline demand growth still remains essentially around double digit and then diesel has been sluggish. We could see a similar sort of demand picture to what we saw last year, having said that some of the big producers and refiners are pointing to some sort of stabilization in this quarter.

SLATE: What is your view on oil demand in India? Do you see it picking up as the economy gets back on track?

DARLING: Yes Indian oil demand growth has been reasonably robust this year. At the start of the year we were forecasting around sort of 2-3% or so growth and in and around that we stick with that forecast.